Compensation and Change of Control Agreement
Exhibit
10.107
This
Compensation and Change of Control Agreement (this “Agreement”) dated as of this
18th
day of
December, 2007, is entered into between Digital Angel Corporation (the
“Company”) and Xxxxxx X. Xxxxx (the “Executive).
BACKGROUND
A. The
Company desires to employ Executive as its Vice President, Chief Financial
Officer, and Treasurer, and Executive desires to accept such employment with
the
Company.
B. The
Company desires to provide to Executive certain compensation, stock option
grants, and benefits in connection with his employment, and the Company further
desires to provide Executive with certain additional compensation in the event
of a change of control event at the Company. The Company and Executive, by
this
Agreement, desire to set forth the details of such compensation
arrangements.
AGREEMENT
1. Compensation
and Benefits.
The
compensation and benefits payable and provided to Executive for services
rendered shall include the following:
1.1 Base
salary of $265,000 per year, payable bi-weekly in accordance with the Company’s
normal payroll practices.
1.2 Car
allowance of $10,000 per year, payable bi-weekly in accordance with the
Company’s normal payroll practices.
1.3 Target
annual bonus of 60% of base salary based upon plan metrics, the Company’s
performance, and individual contribution. Bonus will have a cap equal to 120%
of
base salary.
1.4 Grant
of
stock options for 250,000 shares of Company stock with a strike price equal
to
market closing price as of the date that Executive begins working for the
Company. The stock options will vest ratably over the next five years and will
be subject to the terms of the Company’s stock option plan.
1.5 Executive
will be eligible to participate in the Company’s 401(k) plan, health insurance,
disability and life insurance, and any other welfare benefit plan, program,
or
fringe benefit of employment made available to similarly situated employees
that
may be in effect from time to time.
2. Change
of Control Benefit.
2.1 In
the
event of a Change of Control event (defined below), Company will pay to
Executive the Change of Control Payment set forth in this Agreement. The Change
of Control Payment is payable only upon a Change of Control and a termination
of
Executive’s Employment within three (3) months following such Change of Control
(whether through voluntary resignation or involuntary termination).
2.2 The
Change of Control Payment is equal to the sum of: (a) 200% of Executive’s base
salary in effect at the time of the Change of Control, plus (b) 200% of
Executive’s target bonus (or average annual bonus of the most recent three (3)
years if this is larger). In addition, in the event of a Change of Control,
all
unvested stock options will be immediately vested. Except as provided in Section
3 of this Agreement, the Change of Control Payment will be paid in one lump
sum
within fifteen (15) business days following the date on which the Release
Agreement required pursuant to Section 4 of this Agreement becomes
irrevocable.
2.3 For
purposes of this Agreement, “Change of Control” means the occurrence of any of
the following events, each of which shall be determined independently of the
others:
2.3.1 a
transaction or series of transactions (other than an offering of stock to the
general public through a registration statement filed with the Securities and
Exchange Commission) whereby any “person” or related “group” of “persons” (as
such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other
than the Company, any of its Affiliates, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any Affiliate,
or
any “person” that, prior to such transaction, directly or indirectly controls,
is controlled by, or is under common control with, the Company) becomes a
“beneficial owner” (as such term is used in Rule 13d-3 promulgated under the
Exchange Act) of fify percent (50%) or more of the stock of the Company entitled
to vote in the election of directors; or
2.3.2 the
Company (whether directly or indirectly involving one or more intermediaries)
completes a (1) merger, consolidation, reorganization, or business combination,
or (2) sale or other disposition of all or substantially all of its assets
in
any single transaction or series of related transactions, or (3) the acquisition
of assets or stock of another entity, in each case excepting any
transaction:
2.3.2.1 which
results
in the Company’s voting securities outstanding immediately before the
transaction continuing to represent (either by remaining outstanding or by
being
converted into voting securities of the Company or the person that, as a result
of the transaction, controls, directly or indirectly, the Company or owns,
directly or indirectly, all or substantially all of the Company’s assets or
otherwise succeeds to the business of the
Company
(the Company or such person, the “Successor Entity”)) directly or indirectly, at
least a majority of the combined voting power of the Successor Entity’s
outstanding voting securities immediately after the transaction, and
2.3.2.2 after
which, no Person or group beneficially owns voting securities representing
50%
or more of the combined voting power of the Successor Entity; provided, however,
that no Person or group shall be treated for purposes of this provision as
beneficially owning 50% or more of the combined voting power of the Successor
Entity solely as a result of the voting power held in the Company prior to
the
consummation of the transaction.
2.3.3 Notwithstanding
the foregoing, if, immediately after the occurrence of any event enumerated
above, the Continuing Directors control the majority of the Board of Directors
of the Company (or, in the case of any merger or combination in which the
Company is not the surviving entity, continue to constitute a majority of the
board of directors of such successor entity), such event shall not constitute
a
Change of Control for purposes of this Agreement until such time as (a) the
Continuing Directors no longer constitute a majority of the Board of Directors
of the Company (or the successor entity, if applicable), or (b) the Board of
Directors replaces the Chief Executive Officer of the Company (or the successor
entity, if applicable) that was in place prior to the occurrence of the
applicable change of control event. “Continuing Directors” for this purpose
means the members of the Board of Directors of the Company on the date of this
Agreement, provided that any person becoming a member of the Board of Directors
of the Company subsequent to such date whose nomination for election was
supported by a majority of the directors who at the time of the election or
nomination for election comprised the Continuing Directors shall be considered
to be a Continuing Director.
2.3.4 For
the
avoidance of doubt, a Change of Control shall not mean any merger,
consolidation, reorganization, business combination, sale, or acquisition
transaction between the Company and Applied Digital Solutions, Inc., whether
directly or through controlled intermediaries, regardless of how
structured.
3. Timing
of Payment.
Notwithstanding
any other provision in this Agreement, if any amount payable under this
Agreement is subject to Section 409(A) of the Internal Revenue Code of 1986,
as
amended (the “Code”), then the payment of such amount shall be restructured or
delayed, as necessary, in a manner that preserves as far as practically possible
the form and timing of the benefit and ensures the amount is paid in compliance
with Code Section
409(A).
Any delayed payments shall be aggregated and, pending distribution, held in
a
trust or other similar fund if such treatment shall be determined to be
permissible under applicable law and, in any event, shall be paid in a lump
sum
as of the first day of the first permissible month of distribution. Provided,
however, that the Company does not by operation of this requirement assume
responsibility for compliance with Code Section 409(A). The Executive is
responsible for any additional tax, interest, or penalties under Code Section
409(A) arising out of payment under this Agreement.
4. Release
Agreement.
In
order
to receive the Change of Control Payment, Executive shall execute a release
of
any known or unknown claims that he may have against the Company. The release
shall be in a form reasonably requested by the Company. In accordance with
law,
Executive shall be given a prescribed period of time to consider whether to
sign
the Release Agreement and may revoke the Release Agreement during the stipulated
period following delivery of the signed Release Agreement.
5. Cap
on
Payments.
5.1 General
Rules.
The
Code may place significant tax burdens on Executive and the Company if the
total
payments made to Executive due to a Change of Control exceed prescribed limits.
In order to avoid this excise tax and the related adverse tax consequences
for
the Company, by signing this Agreement Executive agrees that the Change of
Control Payment will not exceed an amount equal to the Executive’s
Cap.
5.2 Special
Definitions.
For
purposes of this Section 5, the following specialized terms will have the
following meanings:
5.2.1 “Base
Period Income”
is an
amount equal to Executive’s “annualized includable compensation” for the “base
period” as defined in Sections 280G(d)(1) and (2) of the Code and the
regulations adopted thereunder. Generally, Executive’s “annualized includable
compensation” is the average of Executive’s annual taxable income from the
Company for the “base period,” which is the five calendar years prior to the
year in which the Change of Control occurs. These concepts are complicated
and
technical and all of the rules set forth in the applicable regulations apply
for
purposes of this Agreement.
5.2.2 “Cap”
or “280G Cap” shall
mean an amount equal to 2.99 times Executive’s “Base Period Income” This is the
maximum amount which Executive may receive without becoming subject to the
excise tax imposed by Section 4999 of the Code or which Company may pay without
loss of deduction under Section 280G of the Code.
5.2.3 “Basic
Payments” include
any “payments in the nature of compensation” (as defined in Section 280G of the
Code and the
regulations
adopted thereunder), made pursuant to this Agreement or otherwise, to or for
Executive’s benefit, the receipt of which is contingent on a Change of Control
and to which Section 280G of the Code applies.
5.3 Calculating
the Cap.
If the
Company believes that these rules will result in a reduction of the payments
to
which Executive is entitled under this Agreement, it will so notify Executive
as
soon as possible. The Company will then, at its expense, retain a “Consultant”
(which shall be a law firm, a certified public accounting firm, and/or a firm
of
recognized executive compensation consultants) to provide a determination
concerning whether the Basic Payments exceed the limit discussed above (the
“Determination”). The Company will select the Consultant. At a minimum, the
Determination required by this Section must set forth the amount of Executive’s
Base Period Income, the value of the Basic Payments, and the amount and present
value of any excess parachute payments. If the Determination states that there
would be an excess parachute payment, Executive’s payments under this Agreement
will be reduced to the extent necessary to eliminate the excess. If the
Consultant selected to provide the Determination so requests, a firm of
recognized executive compensation consultants selected by the Company (which
may, but is not required to be, the Consultant) shall provide an opinion, upon
which such Consultant may rely, as to the reasonableness of any item of
compensation as reasonable compensation for services rendered before or after
the Change of Control. If the Company believes that Executive’s Basic Payments
will exceed the limitations of this Section, it will nonetheless make payments
to Executive, at the times provided above, in the maximum amount that it
believes may be paid without exceeding such limitations. The balance, if any,
will then be paid after the opinions called for above have been received. If
the
amount paid to Executive by the Company is ultimately determined, pursuant
to
the Determination or by the Internal Revenue Service, to have exceeded the
limitation of this Section, Executive shall repay the excess promptly on demand
of the Company. If it is ultimately determined, pursuant to the Determination
or
by the Internal Revenue Service, that a greater payment should have been made
to
Executive, the Company shall pay Executive the amount of the deficiency,
together with interest thereon from the date such amount should have been paid
to the date of such payment, so that Executive will have received or be entitled
to receive the maximum amount to which Executive is entitled under this
Agreement. As a general rule, the Determination shall be binding upon Executive
and the Company. Section 280G and the excise tax rules of Section 4999, however,
are compex and uncertain and, as a result, the Internal Revenue Service may
disagree with the Consultant’s conclusions. If the Internal Revenue Service
determines that the Cap is actually lower than calculated by the Consultant,
the
Cap will be recalculated by the Consultant. Any payment over that revised Cap
will then be repaid by Executive to the Company. If the Internal Revenue Service
determines that the actual Cap exceeds the amount calculated by the Consultant,
the Company shall pay Executive any shortage.
5.4 Effect
of Repeal or Inapplicability.
In the
event that the provisions of Section 280G and 4999 of the Code are repealed
without succession, this Section shall be of no further force or effect.
Moreover, if the provisions of Sections 280G and 4999
of
the
Code do not apply to impose the excise tax to payments under this Agreement,
then the provisions of this Section shall not apply.
6. Additional
Provisions.
6.1 This
Agreement shall be binding upon the parties, their successors and assigns.
6.2 No
provision of this Agreement may be modified, waived, or discharged unless such
is agreed to in writing and signed by both parties. No waiver by either party
of
any provision or condition shall be deemed a waiver at the same or any prior
or
subsequent time of any similar or dissimilar provision or condition.
6.3 This
Agreement may only be amended by a written agreement executed by the parties.
No
amendment that will result in a violation of Section 409A of the Code, or any
other provision of applicable law, may be made to this Agreement and any such
amendment shall be void.
6.4 Any
payments provided for hereunder shall be subject to applicable withholding
requirements under federal, state, or local law, and standard payroll
deductions.
6.5 Nothing
in this Agreement shall be construed as an offer or commitment by the Company
to
continue to employ Executive for any period of time. Executive acknowledges
and
agrees that his employment with the Company shall be on the basis of “at will”
employment relationship.
6.6 This
Agreement shall be construed in accordance with and governed by the laws of
the
State of Florida. Venue for any cause of action arising under this Agreement
shall be in Palm Beach County, Florida, USA.
This
Agreement is signed as of the date set forth above.
DIGITAL
ANGEL CORPORATION
| /s/ Xxxxx X. XxXxxxx | /s/ Xxxxxx X. Xxxxx | |
|
By:
Xxxxx X. XxXxxxx
|
Xxxxxx
X. Xxxxx
|
|
|
Title:
President and CEO
|
